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Farmer Type Joint Stock Companies in Türkiye

Updated: Aug 23, 2023


Today, agricultural enterprises in Turkey are getting smaller and land enterprises are frequently fragmenting. The small and fragmented structure of agricultural enterprises causes directly and indirectly different economic and social problems. It threatens not only Turkey's food sovereignty and food security but also it constitutes one of the biggest obstacle to agricultural production.


We are delighted to share the master thesis summary "New Organization Model Proposal in Turkish Agricultural Law: Farmer Type Joint Stock Partnerships" focusing these problems on agricultural organizations in Turkey by lawyer İlkan Türküresin.


In this study, Türküresin proposes a new model of agricultural organization that focuses on creating optimal scaled agricultural enterprises by bringing together agricultural lands under one roof. This model, called the "Farmer Type Joint Stock Companies" (FJSC), sees agricultural lands as capital and landowners as shareholders, operating under one management with the principles and rules regarding the protection of capital.


This proposal is a response to the small and fragmented structure of agricultural enterprises in Turkey, which poses direct and indirect economic and social problems, threatening the country's food sovereignty and security. Currently, 80% of agricultural enterprises in Turkey are small businesses, and approximately 70% of the total land assets of the country are processed by agricultural enterprises smaller than 500 decares. This is a stark contrast to EU countries, where agricultural enterprises have an average size of 238-521 decares.


Türküresin's proposal highlights that cooperatives, which have been proposed as an agricultural organization policy for many years in Turkey, may not be a suitable solution for the country's agricultural enterprise structure. Instead, the FJSC model presents a solid proposal to transform the rural socio-economic structure in Turkey.


If you're interested in learning more about regenerative agriculture and this innovative proposal, we are pleased to share the summary of this study, which comes out of the Anatolian Grasslands' community.


 

FARMER TYPE JOINT STOCK COMPANIES IN TURKIYE

New Organization Model Idea About Regenerative Agriculture


Att. Ilkan Turkuresin

Agricultural Lawyer




I. Research Subject and Presentation


The thesis titled “New Organization Model Proposal in Turkish Agricultural Law: Farmer Type Joint Stock Partnerships” was defended by the Author within the scope of Istanbul Bilgi University “Economic Law Graduate Program”, after that it was published as a book by Seckin Yayincilik.¹


In this study, it is explained with the basic principles and institutions of cooperatives that the cooperatives adopted as the Turkish agricultural organization policy are not a suitable organization idea for our country whose agricultural enterprises are not of sufficient economic size. It was stated that the understanding of organization in Turkiye should focus on creating optimal scaled agricultural enterprises that have eliminated structural problems by bringing together agricultural lands under one roof, rather than providing services to agricultural enterprises with structural problems. For this reason, a model based on agricultural lands, not agricultural enterprises, has been proposed as an organizational element. In this direction, joint stock companies that will accept agricultural lands as capital, see land owners as shareholders and operate the lands under one management with the principles and rules regarding the protection of capital have been adopted as the basic institution of the model to be created. These joint stock companies, whose capital, field of activity and management are shaped by the socioeconomic status of the agricultural land owners and the nature of the agricultural land, are called “Farmer Type Joint Stock Companies” (“FJSC”). FJSC is a model that is presented as a solution to the small and fragmented structure of agricultural enterprises, which is a structural problem in Turkish agriculture, by emphasizing that cooperatives cannot be a solution, through the institutions and principles of joint stock companies and with an ecological and economic understanding.


II. Status of Agricultural Organization in Turkiye


According to “Agricultural Enterprise Structure Research” conducted by the Turkish Statistical Institute in 2016, 80% of the agricultural enterprises in Turkiye are small agricultural businesses and approximately 70% of the total land assets of our country are processed by agricultural enterprises smaller than 500 decares. The lands of the enterprises are on average 5.9 pieces and these pieces are on average 12 decares.²


When Turkiye is compared with EU countries, which can be considered close to Turkiye in terms of their total agricultural area; it is seen that the average size of the enterprises in England is 538 decares, in Spain is 238 decares, in Germany is 457 decares and in France is 521 decares. Despite of these numbers, the average size of agricultural enterprises in Turkiye is 61 decares³. These statistical data show that agricultural enterprises in our country have shrunk dramatically. Moreover, it shows that the lands of the enterprises in Turkiye are both shrunken and fragmented, which indicates that we are facing a structural problem. This problem presents the fact that in our country, 10 people cultivate the land that 1 person will/should cultivate, 1 person works like 5 people in order to be able to make agricultural production. This situation cause a reduction in the yield we get from our limited amount of land. Since our enterprises do not have an optimal size, the amount of production remains low, while the amount of input used and therefore input costs remain high. Businesses, which are weak with their downsized and fragmented structure, cannot determine the market conditions. Thus, they have to submit to large capital owners and cannot get paid for their labor. For this reason, businesses give up on cultivating their lands and withdraw from production, and many lands in our country remain idle or fall into the hands of large capital groups. Such economic and social problems caused by the small and fragmented structure of our agricultural enterprises threaten the food sovereignty in addition to food security of our country and constitute the biggest obstacle to agricultural production.



Table-2: Graphic showing the agricultural holding structure in Turkiye



Structural problems of the enterprises, which form the core of agricultural organization in Turkiye, make the organization to be built on these enterprises problematic as well. Cooperatives, adopted as an agricultural organization policy in Turkiye, constitute a structure that brings people together around certain economic goals and needs and provides services to them. The cooperative uses the means of workforce of its members and mutual aid and solidarity between the members in order to achieve its determined purpose. Capital is used as a secondary tool in providing services to cooperative members. A cooperative, like a commercial partnership, is not a closed structure in which a certain unchanged number of people who come together and combine their capital and labor in order to make a profit. Cooperatives, without commercial goals; are personal unions in which their members jointly meet their specific economic needs and their professional needs, thus, overcoming the disadvantage of being alone by becoming a cooperative. In this respect, there is no "profit distribution" in cooperatives. The income generated is directed towards the needs of the members. The door of the cooperative is open to everyone who wants to meet their specific economic needs, mutual aid and solidarity. For this reason, the “open door principle” is at the center of the cooperative. As a result of the open-door principle, the number of capital and shares in the cooperative changes with respect to the number of members. The capital of the cooperative increases automatically with each partner entering and also decreases regarding a partner leaving parallelly.

In agricultural cooperatives, it is aimed to meet the specific economic needs of the farmers and to earn more income from their businesses. This surplus income is obtained as a result of the business selling its product above the market price to the cooperative (as in agricultural sales cooperatives) or buying the production inputs from the cooperative, with cheaper price than the market (as in agricultural purchasing and agricultural credit cooperatives). Cooperative members continue their production in their enterprises individually and receive services from the cooperative on certain issues, especially in the supply of inputs or product sales. However, making the agricultural enterprises which have not optimal size, a member of the cooperative and purchasing their products above the market price or providing inputs to them below the market price does not solve the basic structural problems of our enterprises. This policy does not even focus on structural problems of Turkiye. Nevertheless, cooperatives provide only a non -functional economic benefit. For instance, 10 tractors are used for the land that can be cultivated using 1 tractor in Turkiye. Even if the cooperative sells 100 lira tractor in the market for 90 lira; as long as 10 tractors are used for the land that can be cultivated using 1 tractor, the amount of input will remain high. Likewise, selling the product produced by the enterprise above the market price is far from providing the desired benefit due to the production process with high input costs. Another reason is about production ending up with less products than the potential amount can be harvested from the land.




Table-3: Graphic showing the production process of cooperative member enterprises



Since cooperatives are personal unions, the success of cooperatives is determined by the economic power of its members. The incomes of the agricultural cooperatives of the countries with which we have shared the average agricultural enterprise sizes above show that the cooperatives established by bringing together the Turkish enterprises that are not of optimal size are also not economical. While the annual income of agricultural cooperatives in France is 86 billion Euros, 66 billion Euros in Germany, 25 billion Euros in Spain, the income that can be calculated in Turkiye is around 1-2 billion Euros. Along with all these, while Turkiye is the second country with the most agricultural cooperatives in Europe, and also Turkiye has the highest number of agricultural cooperative members in the same region⁴. These figures show that there is participation in agricultural cooperatives in Turkiye, but the cooperatives are far from the expected economical size due to the fact that the enterprises are not in optimal sizes.

The legal justifications and economic indicators that have stated represents that agricultural organization in Turkiye should be started with a model that will create agricultural enterprises with optimal size where the maximum yield is obtained from the unit area. In our opinion, this model should be created with an understanding that organizes agricultural lands, which means bringing them together under one management, rather than an understanding that emphasizes personal elements and organizes businesses. When it is desired to create a model by acting with this understanding, an organizational form should be preferred in which the lands are seen as capital, and the profit, which is the fruit of the capital, is distributed to the landowners. While doing this, a model is needed which covers the rules that can keep the capital under one management.


III. Farmer Type Joint Stock Partnership Model and Adoption of the Model as Agricultural Organization Policy


Since the cultivation of agricultural lands under the management of one person aims to bring the lands together, the landowners should also gather around this purpose which is organizing them. For this purpose, there is a need for a community in which people are organized around a specific purpose with an independent existence on their own, and who are allowed to acquire rights and obligations by the legal order. In order for this community to act as a person who operates agricultural lands, a personality must be created for this community formed by the landowners. Thus, this legal personality must be a legal entity such as an association, foundation, cooperative or company etc.

Number of legal entities in Turkish law are limited (numerus clausus) and it is applicable principle in here. The purpose of each of the legal entities whose rules and principles are established by law is different, and legal entities are organized around these aims and form their institutions and principles. In this respect, when considering which legal entity will be determined as the organizational form of the Turkish agricultural organization, it should be kept in mind that our main goal is to bring together agricultural lands under one management, to create optimal enterprises. It should also be considered that distributing the profit obtained from the production to the land owners. Therefore, we need to select a legal entity with objectives suitable for this goal should be considered. In our opinion, this goal can only be achieved with joint stock companies, which are a capital company, not with cooperatives adopted as an agricultural organization policy in Turkiye.

While cooperatives aim to provide services for the needs of their members who continue their production individually; joint stock companies aim to provide profit to their shareholders. For this purpose, “capital” is the subject to different rules and functions in joint stock companies and cooperatives. While capital in cooperatives is used to provide services to cooperative members, in joint stock companies, the capital is used to generate profit and the profit is distributed to the shareholders according to certain rules. The most basic principle for joint stock companies to fulfill these functions is the principle of capital maintenance. In contrast to the open-door principle in cooperatives, the rules brought by the principle of protection of capital in joint stock companies and the aim of protecting the company's creditors and partners prevent the capital from leaving under the roof of the company with the intervention of the partners. This situation also reveals the basic economic function of joint stock companies. It is done by collecting scattered and small capital, directing the collected capital to big businesses that small capital owners cannot do.

Joint stock companies with institutions and functions that are in line with the agricultural organization, target we have determined will be agricultural enterprises that can bring together the fragmented lands, process them and distribute their profits to their partners. However, in order for a joint stock company to be adopted as the agricultural organization model of our country and to operate, it must establish its institutions according to the socioeconomic status of the landowners and the position of the soil, which is a vital asset, in the ecosystem and in the climate crisis. The joint stock partnership, which we designed with an economic and ecological understanding within the framework of these principles, came to life as an idea in our thesis that we presented under the name "Farmer Type Joint Stock Company".


a. Capital Element


The most basic question that arises in the FJSC is that “How will the land owners be persuaded to give their land to the company as capital?” In our opinion, without losing the ownership of the land owners, establishing the right to use and benefit from their lands as capital in favor of the company they will establish will provide an appropriate answer to this problem. Accordingly, the land owners will undertake to establish a usufruct right or tenancy right for a certain period of time in favor of the company as capital on the agricultural lands during the establishment or capital increase of the company. In this case, the provisions set out in Articles 128, 342 and 343 of the Turkish Commercial Code (“TCC”) numbered 6102, regarding bringing capital in kind to the joint stock company, will be applied. In direction with these provisions, a monetary value will be determined by the experts for the right brought to the company as capital. In line with this value determined, the company's articles of association will be created and the company will be established together with the registration process. After the establishment of the company, the lands will be cultivated by the company for the specified periods, but the ownership of the lands will continue to belong to the land owners.


b. Subject of Activity


FJSC is a partnership that aims to provide efficiency by bringing lands together under one management. The lands that will be brought together under the roof of the company as capital in the FJSC and where agricultural production will be carried out are natural assets which containing life⁵. However, with the intensified conventional agriculture, the soil has lost its vitality all over the world and in our country, and it has become unable to fulfill its basic functions in the ecosystem. For this reason and for the aim that combating and adapting to the climate crisis, it was thought that the lands brought together under the roof of FJSC should be dedicated to regenerative agriculture. Regenerative agriculture is an approach that encompasses all techniques and practices that preserve and improve soil, ecosystem services and cycles while producing nutritious and healthy food. In this direction, the field of activity of FJSC has been determined as “establishing and managing an agricultural enterprise engaged in restorative agriculture”. Thus, a boundary was drawn to the management of the FJSC.


c. Management


Agriculture is a sector that has the most dependence on nature and market conditions compared to other sectors, and that makes its production by using natural assets intensively. As the production process contains many risks; Improper management of the land creates negative effects on soil and water. On the other hand, the fact that the marketing strategy is not set up correctly and the accounting of production costs are not done correctly cause the products to be not sold or to be sold at very low numbers. The ability of the FJSC to continue its agricultural production and thus its commercial activities is closely related to the correct management and planning of the land and the market. However, the ecological, technological and financial literacy levels of agricultural land owners, who will constitute the majority of FJSC partners in Turkiye, are low. With this, the majority of businesses are economically far from receiving consultancy services. This situation will have an intense effect in cases where the need for technical information such as credit management, combating climate change and technology investments. The continuity of the business cannot be ensured if land and market are not managed correctly. For these reasons, there is a need of land management in FJSC by experts who can literally measure the landscape and direct the production process. This is important in terms of both increasing the profitability of the partners and providing ecological management.

An ideal FJSC's board of directors should consist of people with technical knowledge. However, these members will be paid with a salary, although not mandatory, within the framework of their financial rights. It is important for the performance and development of the company to encourage the board of directors by equipping them with certain financial rights. This fee may be in the form of profits, especially for FJSCs that need cash or do not have liquid capital.



Table-4: Graphic showing the production process of the

FJSC (its short form in Turkish is ÇAO) model


d. Financing


In our country, the farmers are “alone” in the steps taken from the beginning to the end of agriculture such as planning, production and marketing. The understanding of farming, in which the farmers feel themselves alone and wait for a capital loan, can be changed by making the society a partner in agricultural production, which is mainly done to provide food to the society. With the transition to a structure such as FJSC, people who can provide cash capital to agricultural production will be able to take place next to the "lone" farmer. People from different segments of the society, who do not make a living from agriculture, can participate in the FJSC as shareholders or provide cash support through debt, donations or rewards. Thus, even if these people are not agricultural workers, they can be indirectly involved in agricultural production. In this way the funds will be provided for agricultural production, where the need for cash capital is intense in Turkiye. In other words, an alternative resource can be created for the cash capital need of the FJSC. For the realization of this process, there is a need of a platform where FJSCs will be able to sell shares, collect donations or request debt; which will enable FJSCs to meet the society/investors, due to the fact that FJSCs are often far from cities and are also unable to maintain their reliability by their own means. The platforms that will enable this are crowdfunding platforms. Crowdfunding refers to the support of a project or initiative with money collected from the public through electronic platforms. The meeting of small investors with the FJSC, thanks to crowdfunding, will be a step that paves the way for community-supported agriculture and that includes not only farmers but the whole society in agricultural production.


e. Tax Exemptions


FJSCs are corporate taxpayers in our country as joint stock companies. FJSC partners are also taxpayers if the company distributes profits. However, the majority of agricultural enterprises are exempt from income tax in our country. For this reason, establishing a business with a FJSC instead of tax-exempt businesses will make difficult for this organization to become our agricultural organization model. Even if there are no obstacles to the establishment and operation of FJSCs within the scope of Turkish commercial law, there is a tax burden that makes it difficult for landowners to choose FJSCs. For this reason, FJSC should be encouraged by providing tax exemptions in order to change the agricultural organization policy of our country and to adopt an organization model suitable for our agricultural structure. The main factor in determining these exemptions is the field of activity of the FJSC.


Tax exemptions should be granted for certain periods and at certain rates, depending on the evaluations to be made according to the mineral cycle (especially organic matter), water cycle (water retention, absorption and erosion-fighting abilities of the land), biodiversity analysis in the lands processed by the FJSC. For this, the issues related to tax exemptions should be determined with a legal arrangement containing the principles of FJSC. The equivalent of the public interest, which should be in every legal regulation, in the proposed regulation is explained in the thesis with the articles of the constitution and the economic and ecological benefit that the foreseen regulation will bring. In summary, it should be noted that; Interpretation of Article 166 of The Turkish Constitution together with Articles 44 and 45, leads us to the conclusion that it is a duty to the state to establish the organization that will get the most yield from our agricultural lands and protect them.


IV. Conclusion


Our exit from the era of economic and ecological crises we are living in is possible by turning this era into regenerative era. For the continuity of life on earth, there is a need to convert the activities that have dragged humanity into the age of crises to regeneration. Because, for a long time, without giving the ecosystem the right to renew itself⁶, it has been tried to take more than natural assets can give and the life contained in these assets has been damaged. For this reason, there is a need for approaches/thoughts that improve ecosystems, soil and water assets, and all kinds of biodiversity beyond preserving them. This is possible by making human activities regenerative. The reflection of the idea of regeneration on the society requires that the law establishing the social order to be regenerative. In this aspect, it is crucial for every society to organize its own legal order with the understanding of regeneration according to its social, economic and ecological situation. FJSC model, which we have designed in accordance with the current socio-economic and ecological situation in Turkiye, is the product of a regenerative agricultural approach of law. In the law of the Regeneration Era, such legal designs should be produced.

If FJSC, which could be established and operate in accordance with the provisions of the current legislation in Turkiye, will be exempted from the tax liabilities of joint stock companies, they can gain prevalence in Turkish agriculture. The FJSC model and its field of activity are a system that will ensure efficient use of the limited amount of lands that it has made a capital element, which are fragmented and shrunk; increase soil vitality by repairing the soil, strengthen ecosystem services and produce healthy food. This model will turn the landed peasant into a farmer who can fight under market conditions. Enterprises that will fight against climate change and adapt to this change will be created and farmers who should be the masters of the nation will be mastered.


2. Turkish Statical Institute, “Agricultural Enterprises Structure Research”, 2016 https://data.tuik.gov.tr/Bulten/Index?p=Tarimsal--Isletme-Yapi-Arastirmasi-2016-24869 (Date of Access: 21.11.2022)

3. Ahmet Semih UZUNDUMLU: “A Comparison of the Agricultural Structure of EU Countries and Turkey” , Alınteri Journal of Agriculture Sciences, 23 (B) – 2012, pages:64-73

4. Cooperatives Europe, The Power of Cooperation, Cooperatives Europe Key Figures 2015, April 2016. https://coopseurope.coop/wp-content/uploads/2016/04/The-power-of-Cooperation-Cooperatives-Europe-key-statistics-2015.pdf (Date of Access: 21.11.2022)

5. At the First International Agricultural Law Congress (March 28 - April 3, 1954 at the University of Florence), the characteristics of the private legal system of agriculture were revealed and it was understood that land ownership should be reorganized as it should be. Giuseppe Capogrossi stated that landed property should be considered as a synthesis of the interests of three lives: the landowners, the land (which is also a living being) and the whole society. (Suat AKSOY, Tarım Hukuku (Agricultural Law), Ankara University Faculty of Agriculture Publications, 1984, p. 30)

6. The right of the ecosystem is one of “Fourth Generation Rigths” like the right of city or future generations. “The right of the ecosystem” is defined in Turkiye by Ecological Lawyer Omer Aykul as follows. It is a right that expresses the right of the ecosystem to exist, renew and develop itself, and the subject of this right is that ecosystem. (That ecosystem could be as a world ecosystem at a macro level, as land and sea ecosystems, which are the two basic ecosystems, or as a forest ecosystem, mountain ecosystem, desert ecosystem, steppe ecosystem, pasture ecosystem, coastal ecosystem, etc.) (Omer Aykul, “Hukuk Sisteminde Temel İnsan Haklari Ve Gelinen Son Aşama; “Dördüncü Kuşak Haklar Ve Bunlari Talep Hakki” (Fundamental Human Rights and the Last Stage in the Legal System; “Fourth Generation Rights and The Right to Claim Them) http://www.aykultopcu.com/Habervemakele-184-Hukuk-S)



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